Personal insolvencies at three-year low

While total number of personal insolvencies falls, rises seen in areas including Birmingham, Middlesbrough and Stirling.

The number of personal insolvencies in England and Wales fell to a three-year low in 2011, despite tough economic conditions, official figures show. However, analysis by credit referencing agency Experian suggests that in some regions the number increased.

A total of 28,973 individual insolvencies were declared between October and December, a 5.6% decrease on the same period the previous year, and down from 30,219 in the third quarter, the Insolvency Service said.

The total number of personal insolvencies in 2011 was 119,850, down from 135,045 in 2010.

The number of personal bankruptcies was down by 28.3% year-on-year, at 8,626, while individual voluntary arrangements – where borrowers reach an agreement with their creditors to repay a set percentage of their debts, were down by 4.5% to 13,047.

In contrast, there was an 18.3% increase in the number of debt relief orders taken out, with the number reaching 7,300 over the quarter. These insolvency arrangements were launched in April 2009 to allow those struggling with debts of up to £15,000 to write them off, subject to a number of conditions. The borrower must have a disposable income of no more than £50 a month, savings and assets worth less than £300, and cannot be a homeowner.

However, while personal insolvencies dropped, the number of companies falling into liquidation was up by 7.2% on the same quarter of 2010, and by 0.4% on the previous quarter of 2011, to 4,260.

Over the whole of 2011, a total of 16,871 companies became insolvent, an increase of 5.1% on 2010.

This was made up of 4,988 compulsory liquidations – up 4.1% on 2010’s figure – and 11,883 creditors’ voluntary liquidations – up 5.6% on 2010.

Analysis by Experian showed that while the total number of personal insolvencies had fallen, in Birmingham it was up by 6%, with 30 in every 10,000 households experiencing insolvency in 2011.

Middlesbrough and Stirling also experienced rising levels of personal insolvencies, up by 5% and 2% respectively.

Experian’s data reveals that the largest share of UK insolvencies continues to be in a demographic it calls “the ex-council community group” – typically those living on council estates where a large proportion of residents have exercised their right to buy.

This group, which makes up 9.26 per cent of the UK adult population, accounted for 14.54% of UK insolvencies in 2011.

Simon Waller, head of customer management and collections for Experian UK & Ireland, commented: “Whilst it is encouraging to see that personal insolvencies are declining throughout the UK, there are still pockets of society where financial stress has increased in 2011.

“Redundancy and relationship breakdown are typically the main reasons people experience serious financial difficulties. Lenders that use data and analytics to better understand the specific circumstances of their individual customers are best placed to assess risk and to manage their customer relationships accordingly.”

Joanna Elson, chief executive of the Money Advice Trust, cautioned against considering the fall in personal insolvency as completely good news.

“It is noticeable that the fall in insolvency figures is driven entirely by a drop in bankruptcies, whilst the cheaper remedies, Individual Voluntary Agreements and Debt Relief Orders (DROs), have both risen. Talking to people who call National Debtline leads us to believe that one of the main drivers behind the drop in bankruptcies may be the level of fees now charged. Our view is that many people who would otherwise have gone bankrupt have been forced into something of a financial black hole, because they are unable to afford the £700 the process now costs (£525 for the deposit plus £175 for the court fee).”

She added: “Undoubtedly many households across the country are facing grave concerns about their finances, and it is vital that they understand the range of options available for dealing with their debt, as well as the consequences of those options.”